Chapter 8

Question 1

All types of insurance policies typically include a list of provisions. Name 6.

Answer 1

1. free-look provision
2. entire contract provision
3. incontestability provision,
4. grace period provision
5. reinstatement provision
6. misstatement of age or sex provision

Question 2

what is the purpose of a provision, which vairies in structure but typically is included in all or most insurance policies.

Answer 2

they are designed to protect policy owners and beneficiaries. Insurers generally have the right to include provisions that are more favourable to the policy owner than those required by law

Question 3

Define the free-look provision, and its purpose

Answer 3

gives a policyowner a stated period of time (usually 10 days) after the policy is delivered (in hand) in which to examine the policy. This allows the owner to to cancel and have full refund. Coverage is available throughout this period or until the policy owner rejects it.

Question 4

What is the entire contract provision define?

Answer 4

defines the documents that constitute the contract. This limits the terms of the contract to specific written documents.

Question 5

what would an entire contract provision be used? And how does it vary between a closed and open contract?

Answer 5

helps prevent controversies from developing regarding the terms of the contractual agreement.

• closed: only those terms and conditions that are printed in the contract are part of the contract.
• open: identifies the document are not necessarily attached to contracts. (fraternal insurers and memberships)

Question 6

what is a declaration of insurability?

Answer 6

a form in which a proposed insured answers specific questions about his medical history.

Question 7

the entire contact provision usually states 3 regulations, what are they?

Answer 7

1. only specific individuals such as certain officers of the insurer can change the contract
2. no change is effective unless made in writing.
3. no change will be made unless the policy owner agrees to it in writing.

Question 8

insurance laws in many jurisdictions impose two important loimits on an insurer’s right to avoid an insurance contract on the basis of misrepresentation. What are they?

Answer 8

1. only certain misrepresentations (material misrepresentation) give the insurer the right to avoid an insurance contract
2. the insurer has only a limited amount of time in which to avoid an insurance contract

Question 9

what is an incontestability provision?

Answer 9

describes the time limit within which the insurer has the right to avoid the contract on the ground of material misrepresentation in the application.

Question 10

what is material misrepresentation

Answer 10

a misrepresentation that is relevant to the insurance company’s evaluation of the proposed insured. ITs considered material, if had the truth been known the insurer would not have issued the policy or would have issued on different basis.

Question 11

what is the incontestability provision, and how is it worded in the states?

Answer 11

the terms usually determine whether the insuere can avoid the contract
- states: policy is incontestable afger it has been in force during the lifetime of the insured for two years from the date the policy was issued.

Question 12

what is the maximum contestable period permitted by law in most states?

Answer 12

two-year contestable period

Question 13

what happens after the contestable period has ended? is there an exception to this rule?

Answer 13

the insurer cannot avoid the contract
exception is that an insurer may contest a cpolicy at any time if the application for insurance contained a fraudulent misrepresentation.

Question 14

what is a fraudulent misrepresentation ?

Answer 14

misreprensentation that was made with the intent to induce the other party to enter into a contract and that did induce the innocent party to enter into the contract.

Question 15

What is the grace period provision ?

Answer 15

specifies a length of time following each renewal premium due date within which the premium may be paid without loss of coverage?

Question 16

how long is a typical grace period?

Answer 16

30-31 dats, and the coverage remains in force throughout that period.

Question 17

what happens when a required renewal premium is not paid by the end of its grace period?

Answer 17

usually lapses, however cash value policies contain a nonforfeiture provision, that usually allows policy-owners to continue coverage under specific circumstances even if the premium is not paid.

Question 18

What does the reinstatement provision describe?

Answer 18

the conditions that the policy-owner must meet to reinstate a policy?

Question 19

what is the reinstatemnt process?

Answer 19

the company puts back into force a life insurance policy that was either terminated d/t no payment or has been continued eder the extended term or reduced paid-ip insurance nonforfeiture option

Question 20

What 4 typical conditions need to be met to reinstate a policy?

Answer 20

1. complete reinstatement application within time frame (2-5 yrs. usually)
2. provide insurance company with satisfactory evidence of the insured continued insruability
3. pay a specified amount of money
4. may need to pay outstanding policy loan or have the policy loan including any additional accrued interest reinstated with the policy.

Question 21

the specific amount of money required to reinstate a policy depends on the type of policy. Explain./

Answer 21

fixed premium policies: pay back all premiums plus interrest.
flexible premium policies: pay an amount sufficient to cover policies mortality and expense charges for at least two months, i addition maybe mortality and expense charges for the period between the date of lapse and reinstatement

Question 22

what are 2 advantages to reintating a fixed premium policy?

Answer 22

1. The premium rate for the original policy is based on the insured’s age at the time the policy was purchased.
2. original cash value is reinstated

Question 23

what does the misstatement of age or sex provision define?

Answer 23

actions the insurer will take to adjust the amount of the policy benefit in the event that the age or sex of the insureds is incorrectly stated. Usually the insurer will adjust the face amount of the policy to the amount the premiums actually paid would have purchased if the information was correct.

Question 24

what is the purpose of the policy loan provision ?

Answer 24

it specifies the terms on which the policy-owner of a cash value insurance policy can obtain a loan against the policies cash value.
- a policy loan is an advance payment of part of the amount that the insurer eventually must payout under the policy.

Question 25

how is a commercial loan different from a policy loan from a leading institution (bank)?

Answer 25

1. policy owner is not legally obligated to repay a policy loan, or right away. (can later be deducted from benefit)
2. a commercial loan creates a debt or creditor relationship between the borrower and the lender. The borrower is legally obligated to repay a commercial loan.
3. insurance loans do not do credit checks, for policy loans.

Question 26

what is a policy withdraw provision with is usually included in a universal life insurance policy?

Answer 26

permits the policyowner to reduce the amount of the policy’s cash value by withdrawing up to the amount of the cash value in cash.
there is typically an administrative fee for each withdrawal and limit the number of times you can do it in a year.

Question 27

What is the nonforfeiture provision?

Answer 27

give the policyowner the right to select from several nonforfeiture options if a renewal premium is unpaid when the grace period expires. usually includes
1. cash payment nonforfeiture option
2. two continued coverage options ( reduced paid-up insurance and extended term insurance)
2, automatic premium loan option

Question 28

which nonforfeiture benefit is most commonly attached to poilicies

Answer 28

automatic nonforfeiture benefit, which becomes effective automatically when a renewal premium for a cash value insurance policy is not paid byt the end of the grace period and the policy owner has not elected another options
- its usually extended term insurance benefit.

Question 29

what is the cash payment nonforfeiture option?

Answer 29

it states that a policy-owner who discontinues premium payments can elect to surrender the policy and receive the policy’s cash surrender value in a lump-sum payment.

Question 30

what is the term given to the amount the policyonwer actually receives after adjustments have been made to the addition and subtractions of the cash surrender value (amount payable to policy owner following subtactstions of the amount of oustanding policy loans and interrests) ?

Answer 30

net cash value

Question 31

what happens under the reduced paid-up insurance nonforfeiture option?

Answer 31

the policy’s net cash surrender value is used as a net single premium to purchase paid-up life insurance of the same plan as the original policy.

Question 32

what is the face amount that can be purchased under the reduced paid-up insurance nonforfeiture option?

Answer 32

• the amount that can be purchased under this option is smaller than the face amount of the originally policy.
• usually these policies contain a chart listing the amount available each year for the first 20 years. the value is based on the cash value listed in the policy of that year

Question 33

what happens to a policy under the extended term insurance nonforfeiture option?

Answer 33

The insurance company uses the policies net cash surrender value to purchase term insurance for the full coverage amount provided under the original policy, for as a long as a term as the net cash surrender value can provide.

Question 34

can a policy owner who has elected the extended term nonforfeiture option exercise the policy loan privilege or receive policy dividends?

Answer 34

no,

however they can cancel it and surrender the policy for its remaining cash value.

Question 35

do universal life insurance policies include an extended term insurance nonforfeiture option?

Answer 35

not typically.

Question 36

what happens under the automatic premium loan option?

Answer 36

an insurer will automatically pay an overdue premium for the policyowner by making a loan agasint the policies cash value as long as the cash value equals or exceeds the amount of the premium due.

Question 37

what is an exclusion provision?

Answer 37

it describes circumstances under which the insurer will not pay the policy proceeds following the death of the insured.

Question 38

give an example of a exclusion provision usually included in life insurance policies?

Answer 38

suicide excusion provision.

the usual maxium allowable length of suicide exculsion period is stated (2 years)

Question 39

What are some other common exlusion causes that one may find? (they do vary from insurer to insurer and country to country)

Answer 39

1. war exclusion - death from acts of war
2. hazardous acitvities- dies during activities
3. aviation exlusion- dies if flying, military, experimental aircraft, ext.

Question 40

what are some exceptions made by insurers to policyowners in terms of contracting dangerous actives/hobbies?

Answer 40

1. exclude them from coverage

2. paying an additional premium for such coverage.,